Quick answer
Before entering a trade, identify the setup and market context, state the trigger and invalidation, calculate the loss at the stop, check realistic reward after costs, review news and correlated exposure, and write down the decision. If a required condition is missing, wait or skip instead of changing the rule after seeing the chart.
A practical workflow
- Step 1
Context
Name the instrument, timeframe, broader trend or range, and nearby levels.
- Step 2
Trigger
Specify the price action that must occur before entry; distinguish a forming candle from a closed one.
- Step 3
Risk
Place invalidation where the idea is wrong, then size from a fixed money-risk budget.
- Step 4
Decision
Check costs, event risk, and daily limits; record take, wait, or skip with a reason.
The setup must be falsifiable
Write the setup in one sentence: market, direction, location, and trigger. For example, a pullback into prior support is only a location until price confirms that buyers are defending it. Then identify the price that would show the idea failed. An exit chosen solely because it makes the position size larger is not a valid invalidation level.
If the chart has no coherent invalidation, the risk cannot be measured. WAIT is an acceptable result even if a signal marker or AI assessment looks attractive.
- Named setup family
- Specific entry condition
- Price that invalidates the thesis
- Condition that would make you wait
Turn the stop distance into position size
Choose the amount of money you are willing to lose before looking at the position size. For a simple linear instrument, estimated quantity is the money-risk budget divided by the price distance from entry to stop, adjusted for contract value and costs. Forex, futures, and leveraged products require their own pip, tick, or contract conventions.
Round down to the broker's permitted increment and account for spread, commission, and possible slippage. A technically reasonable stop can still require a position too small to place; skip rather than exceed the risk budget.
Check the reward and the environment
A target should correspond to plausible chart structure, not an arbitrary multiple typed into a calculator. Compare the possible reward after costs with the planned loss. Then inspect scheduled events, current spread, liquidity, and existing correlated positions. Several individually small trades can create one large exposure if they depend on the same market move.
No universal reward-to-risk threshold guarantees a good trade. The relevant question is whether this setup matches rules you have defined and evaluated for the market you trade.
Record outcomes without rewriting the plan
Save the chart and the planned trigger, stop, size, target, and reason for taking or skipping the trade. Review process adherence separately from profit. A disciplined loss is not evidence that the plan was bad, and a profitable rule violation is not evidence that the plan was good.
A journal becomes most useful when it includes skipped trades and WAIT decisions. That lets you examine whether the checklist filters weak setups or simply delays decisions.
Common questions
What if the chart looks good but the checklist fails?
Wait or skip. A checklist only limits risk when its required conditions cannot be waived for an attractive-looking chart.
Should an AI confidence score change my risk limit?
No. A confidence label is not a verified win probability. Keep position size tied to your predetermined risk budget and stop distance.
Do I need to journal trades I did not take?
Recording important WAIT and skip decisions helps you evaluate whether your filters are useful over time.
Educational decision support. Chart analysis cannot guarantee a result, and all prices, contract values, and execution conditions require independent verification.